Refinery Margin Tracker: Weak naphtha cracks depress US Gulf Coast margins

1 week ago DieselGasoil Comments Off on Refinery Margin Tracker: Weak naphtha cracks depress US Gulf Coast margins
Highlights

Increase in light sweet crude throughput ups naphtha output

WTI MEH cracking margins slide $1.34/b on week

US sanctions cut into diluent demand for heavier barrels

New York —
As US Gulf Coast refiners maximize throughput of local light sweet crudes from the Permian and Eagle Ford into their complex refineries, the naphtha produced is overwhelming downstream conversion units and eating into profit margins, an analysis by S&P Global Platts showed Monday.

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USGC cracking margins for WTI MEH priced at the export point of Magellan’s East Houston terminal averaged $9.63/b for the week ended August 9, down $1.34 from $10.97/b the week earlier, according to S&P Global Platts Analytics margin data.

And as US crude and condensate production from the Lower 48 states gets lighter and more prolific, it is more economical to run than imported crudes, particularly heavier sour grades. Lighter crude produces more naphtha, which is used as feedstock for refinery catalytic reforming units as well as catalytic hydrotreating units.

“Our reformers were full,” said Lane Riggs, Valero’s head of refining, on a second-quarter earnings call July 25. “Right now, one of the most-economic units in addition to the alky is our reformer.”

So far in the third quarter, USGC reformate pipeline material is holding a 65.2 cent/gal premium to unleaded 87 octane gasoline, compared with a 57.6 cent/gal premium in the second quarter, according to Platts price assessments.

Alkylates and reformates add octane to gasoline, even more crucial today to add octane to lower-sulfur Tier 3 gasoline spec. Valero completed its Houston 13,000 b/d alkylation unit in the second quarter, and its 17,000 b/d alkylation unit at its St. Charles, Louisiana, is on track for a 2020 completion.

DILUENT DEMAND DWINDLES

May’s production of Lower 48 barrels between 30.1-35 API fell to 1.38 million b/d from the 1.527 million b/d in April, while barrels between 40.1-45 API rose to 3.9 million b/d from 3.86 b/d. And production of even lighter barrels – dubbed West Texas Light – rose to 1.8 million b/d in May from 1.71 million b/d in April.

On the end of the barrel, OPEC production discipline has cut into supply of heavier, more-sour crudes, raising prices and eating into margins. USGC Arab Light cracking margins averaged $3.53/b the week ended August 9 compared with the $6.19/b the week earlier.

Lack of heavy crude has also cut into demand for naphtha as a diluent needed to blend with very heavy crude barrels to make them more liquid.

“A lot of USGC naphtha was going to Venezuela for diluent, and as that has shut off, it caused naphtha to get weaker,” Gary Simmons, Valero’s head of commercial operations Gary Simmons, said on the call.


US Atlantic Coast Refining Margin Averages ($/b)
Bonny Light Cracking Syncrude Cracking Bakken Crude Cracking Forties Cracking
Week ending August 09 8.81 5.01 13.04 9.83
Week ending August 02 8.91 5.60 12.43 10.35
Q3 to date 9.72 7.99 14.22 10.98
Q3-18 8.07 13.02 13.33 8.84
Q2-19 7.42 9.11 14.05 7.64
Q1-19 3.94 6.36 8.59 3.72
Source: S&P Global Platts Analytics
US Gulf Coast Refining Margin Averages ($/b)
WTI MEH Cracking Isthmus Cracking Mars Coking Vasconia Coking
Week ending August 09 9.63 6.23 7.30 9.34
Week ending August 02 10.97 8.26 8.52 9.82
Q3 to date 12.27 9.09 9.24 10.83
Q3-18 10.20 11.37 11.19 12.86
Q2-19 9.59 7.04 8.32 9.25
Q1-19 8.38 5.14 5.97 7.76
Source: S&P Global Platts Analytics
US Midwest Refining Margin Averages ($/b)
Bakken Cracking Syncrude Cracking WTI Cushing Cracking WCS ex-Cushing Coking
Week ending August 09 13.66 11.63 12.01 13.22
Week ending August 02 13.59 12.50 14.02 14.46
Q3 to date 15.93 14.43 15.64 16.36
Q3-18 18.23 21.35 14.70 16.48
Q2-19 18.56 17.53 16.90 16.95
Q1-19 11.43 11.03 11.49 9.93
Source: S&P Global Platts Analytics
US West Coast Refining Margin Averages ($/b)
ANS Cracking Napo Coking Arab Medium Coking Vasconia Coking
Week ending August 09 9.98 12.36 9.49 15.24
Week ending August 02 12.29 14.18 10.93 15.95
Q3 to date 13.55 15.25 11.87 17.56
Q3-18 13.72 17.98 15.37 19.86
Q2-19 19.48 22.32 18.44 24.37
Q1-19 12.98 15.22 11.05 16.04
Source: S&P Global Platts Analytics
Singapore Refining Margin Averages ($/b)
Dubai Cracking Forties Cracking ESPO Cracking WTI MEH Cracking
Week ending August 09 2.28 1.92 -0.03 3.24
Week ending August 02 3.26 1.71 0.80 3.36
Q3 to date 3.84 1.30 2.05 4.11
Q3-18 3.55 3.04 2.83 4.77
Q2-19 0.81 -1.15 0.22 1.95
Q1-19 1.32 -0.03 0.75 2.58
Source: S&P Global Platts Analytics
ARA Refining Margin Averages ($/b)
Forties Cracking Bonny Light Cracking Azeri Light Cracking Urals Cracking
Week ending August 09 7.53 7.89 6.15 6.99
Week ending August 02 7.24 7.32 5.89 6.23
Q3 to date 7.00 7.42 6.33 7.49
Q3-18 6.11 6.73 5.86 6.49
Q2-19 4.99 6.18 4.65 5.79
Q1-19 3.15 3.62 2.99 3.70
Source: S&P Global Platts Analytics
Italy Refining Margin Averages ($/b)
Urals Cracking CPC Blend Cracking Azeri Light Cracking WTI MEH Cracking
Week ending August 09 4.40 9.22 5.77 7.02
Week ending August 02 4.49 8.89 5.65 7.56
Q3 to date 6.28 9.70 6.29 8.20
Q3-18 5.93 7.92 5.88 6.03
Q2-19 3.82 6.49 3.85 5.25
Q1-19 2.88 5.25 3.42 3.48
Source: S&P Global Platts Analytics


— Janet McGurty, janet.mcgurty@spglobal.com

— Edited by Jim Levesque, newsdesk@spglobal.com